Free Access CFA.CFA-Level-I.v2022-03-06.q736 Practice Test (Page 20)

Question 91

Volatility risk is the risk

A.that the ability of an issuer to make interest and principal payments changes dramatically and unexpectedly because of certain events.

B.that the price of a bond with an embedded option will change when expected yield volatility changes.

C.that arises because of the variation in the value of cash flows from a security due to inflation.

Question 92

For the year just ended, James' Drafting Supplies had average accounts receivable of $880,000 from total credit sales of $4,800,000 for the year. Throughout the year, a factor purchased accounts receivable from the firm at a 2 percent discount. What was the firm's accounts receivable period?

A.67 days.

B.71 days.

C.75 days.

Question 93

You are the Senior Analyst at an Investment Bank who is in the process of underwriting a firm's primary stock offering. However, through in depth analysis, you discover that the Firm whose stock your firm is underwriting is experiencing severe cash flow problems that could lead to it going insolvent. This fact is NOT mentioned in the prospectus. What should you do?

A.Notify potential investors with respect to the problem.

B.Ignore the information due to its sensitivity.

C.Report the issue to your supervisor.

Question 94

A portfolio manager is concerned about not keeping up with the rate of inflation. His portfolio has a mean return of 9% with a variance of 144. If the inflation is expected to be 3.5% what is the shortfall risk, i.e., the portfolio return being less than 3.5%?

A.32.3%

B.67.7%

C.50%